What are the defining characteristics of an “entrepreneur” and a “capitalist”?
Since all actions involve risks, forecasting, the prospect of gain, and the employment of capital (even if it is the human body), aren’t all actions in fact both entrepreneurial and capitalistic? And if this so, what considerations do we make when we describe a specific action or individual as one or the other?
I think it is limited by definition to actions taken to fill the needs of consumers, involving an outlay of capital.
Which word are you defining there? Entrepreneur or capitalist?
I assumed they are synonymous
Since all actions involve risks, forecasting, the prospect of gain, and the employment of capital (even if it is the human body), aren’t all actions in fact both entrepreneurial and capitalistic? And if this so, what considerations do we make when we describe a specific action or individual as one or the other?
Right, “entrepreneur” and “capitalist” (and “worker” too) are functions which can be embodied in a single person.
When I think of an entrepreneur, I think of a poor person with a big idea, someone who has spotted an unfulfilled need and believes he knows a better way that capital might be used.
When I think of a capitalist, I think of a wealthy person who does not need to come up with an idea, but merely has to evaluate the ideas of entrepreneurs who need capital to implement their ideas.
These impressions do not seem precise enough to be definitions.
Right, “entrepreneur” and “capitalist” (and “worker” too) are functions which can be embodied in a single person.
For sure. But what I am asking about is a stronger claim than that: that all actions are both entrepreneurial and capitalistic (and possibly laborious too).
What does it matter? The point is which service a person is predominantly providing to consumers. To the degree that they contribute via capital e.g. they will receive interest. All actions may have aspects that are e.g. entrepreneurial, but specified roles abstract from the other elements.
“When I think of an entrepreneur, I think of a poor person with a big idea, someone who has spotted an unfulfilled need and believes he knows a better way that capital might be used.
When I think of a capitalist, I think of a wealthy person who does not need to come up with an idea, but merely has to evaluate the ideas of entrepreneurs who need capital to implement their ideas..”
Well, what Peter Klein argues (and past Austrians too, either implicitly or explicitly) is that entrepreneurship is inextricably tied up with asset ownership. Entrepreneurship, in the Cantillon/Austrian sense, is uncertainty-bearing, and not innovation. And to be the one truly bearing uncertainty is to be the one who is exposed to both profit and loss. So, while the innovative poor person might be considered an entrepreneur with regard to his own personal energy (although Klein also takes issue with the notion of “human capital”), it is the person who supplies the capital for the idea who is the entrepreneur with regard to the capital itself. It is asset-owers (even “idle” shareholders) who hold the entrepreneurial function. Even though they give their mandatories (the “idea men”, executives, managers, technicians, etc) latitude to exercise judgment, it is what entrepreneurship theory calls “derived judgment”. It is the asset-owner’s (revocable) decision to employ the mandatories in the first place that is the “original judgment”.
If Peter Klein ever teaches a course based on his “The Capitalist and the Entrepreneur” book again, I highly recommend taking it. It’s fascinating stuff.
“For sure. But what I am asking about is a stronger claim than that: that all actions are both entrepreneurial and capitalistic (and possibly laborious too).”
That dovetails with my thinking, and I think there could be a strong case for that. But I would make the important exception that as catallactic functions, that would be true only for market actions (actions which involve money prices).
I’ve actually been thinking about this very question a lot. I think ANY proceeds for any market action, even those which are labeled “wages” in their entirety really have three components.
Well, what Peter Klein argues (and past Austrians too, either implicitly or explicitly) is that entrepreneurship is inextricably tied up with asset ownership.
Do you know in which chapter specifically he makes this point in the book?
“The entrepreneur is the person, natural or juristic (i.e., individual or collective), who enters the market with the object of making a profit, that is to say, of getting more than he gives. In this sense, all those who go to the market are entrepreneurs, buyers as well as sellers, since anyone who buys a cow for two hundred dollars does so because he considers that, for him, the cow is worth more than the money he pays for it. Otherwise he would keep his two hundred dollars.” Essentials of Economics by Faustino Ballve
“However, in economics one who enters the market in order to obtain what he needs for his own use is not called an entrepreneur, but a consumer. Strictly speaking, the entrepreneur is anyone who goes to the
market to sell or anyone who goes to the market to buy, not for his own consumption, but to resell what he has bought.”
“Do you know in which chapter specifically he makes this point in the book?”
He discusses the owner-entrepreneur in chapter 2 and “original” vs. “derived” judgment in chapter 4.
Kirzner on entrepreneurial discovery:
The theory of entrepreneurial discovery sees the explanation of market phenomena in the way of entrepreneurial decisions, taken under disequilibrium conditions, bring about the changes in prices and quantities. The market process so initiated consists of continual entrepreneurial discoveries; it is process discovery driven by dynamic competition, made possible by an institutional framework which permits unimpeded entrepreneurial entry into both new and old markets. The success which capitalist market economies display is the result of a powerful tendency for less efficient, less imaginative courses of productive action, to be replaced by newly discovered superior ways of serving consumers - by producing better goods and/or by taking advantage of hitherto unknown, but available, sources of resource supply.
How markets work: disequilibrium, entrepreneurship and discovery, pg. 30.
Thanks Grayson, I’ve just ordered the Klein book.
Why is this only true for market actions involving money prices?
Money proceeds are the only kind of proceeds upon which arithmetic (deducting wages and interest to determine profit and loss) can be meaningfully performed.
I see. So “proceeds”, “wages” and “interest” must all be in the same unit for us to be able to calculate profit/loss. But if they were all in different units, there would still be wages, interest and profit/loss components of income, except that we would not be able to calculate the profit/loss component. Is that what you mean?
No, wages and interest too are catallactic concepts. They have no meaning outside economic calculation. In barter exchange, there is only “psychic profit” and “psychic loss”. Whether someone regrets a barter exchange ('psychic loss") or does not (“psychic profit”) is causally determined by the labor and time involved in the action, but there is no way to conceptually separate barter “proceeds” into components, because the items involved are incommensurable. For example, if an exchange nets an actor 40 feet of rope, 2 pounds of butter, and 3 gallons of wine, there is no meaningful way of calling any portion of that “wages” and any other portion of it “interest.”
Grayson: "I’ve actually been thinking about this very question a lot. I think ANY proceeds for any market action, even those which are labeled “wages” in their entirety really have three components.
The above summary is excellent.
It really clears up much fog regarding these concepts using very few words. I had to read through this several times to really grasp what you’re saying. It demonstrates how the three concepts are interrelated. I think it is worthwhile to commit the above to memory.